Economy grows, but how many benefit?

Economy grows, but how many benefit?


economy benefits

BAGHDAD/DUBAI, 24 April 2013 (IRIN) – Iraq’s development has historically been linked to its ability to sell and produce oil, and to world oil prices. Yet oil-related measures of economic growth may obscure some of the economic conditions facing ordinary Iraqis.
In 1980, after the oil crisis of the mid-1970s led to higher oil prices, Iraq’s GDP per capita was higher than any other country in the region (except Israel and the Gulf states), at US$3,453, according to the World Bank. But this number plummeted in the 1990s, during the Iran-Iraq war and years of sanctions, hitting a low of $455 in 1997. After rising slightly in 2000, it dipped again, to $742 in 2000. By 2011, it had returned to $3,501, though these figures are not adjusted for inflation.
Iraq is now the second-largest producer of crude oil and has the fifth-largest proven crude oil reserves in the world. With an expected annual growth of 9.4 percent through 2016, Iraq has the region’s fastest growing economy, according to the government.
Rising oil prices brought in revenues of $94 billion in 2012 and are projected to bring in more than $100 billion in 2013, according to the Middle East Economic Survey. The International Monetary Fund projects Iraq’s GDP will grow by nine percent in 2013.
Public sector growth
As a result of its increased ability to sell oil post-sanctions, the public sector has expanded, and salaries of public sector workers have increased significantly, giving rise to a strengthened middle class.
“Before 2003,” said government employee Sa’ad al-Shimary, “[former President Saddam Hussein’s] Baath Party was everywhere. It was hard to work in such an environment. I feared they might write a report against me, as they always did, if we tried to criticize their work for any reason. I feared I might go to work and not return home.”
Back then, he told IRIN, he had to work extra hours as a taxi driver to pay the bills. “Now my salary is enough for me and my family. I have no fear in the ministry. My life has changed for the better; I have more money, and I have a new car.”
Year-on-year, Iraq’s recent economic growth (“real GDP” adjusted for inflation) has been more modest than nominal GDP growth, though still healthy. The economy retracted by 28.3 percent in 2003, according to Business Monitor International, but it rebounded by 39.6 percent the year after. Between 2005 and 2011, the economy grew by an average of 6.5 percent per year, even during the worst years of violence.
Still, Bassam Yousif, a professor of economics at Indiana State University, describes Iraq’s economic growth in the last decade as “anemic” given its weak starting point – an economy depressed by sanctions and a government restricted in trade, unable to spend any money domestically – and the sudden influx of cash when it was able to resume oil exports.
“What you would have thought Iraq could do with this windfall money 10 years ago is very different than what actually happened,” he said.
Waiting to see benefits
Economists and aid workers say much of the newfound wealth has not trickled down, largely due to Iraq’s economic dependence on oil, government corruption, a lack of capacity to execute budgets and a failure to develop the private sector.
“Even though GDP is going up, the average Iraqi doesn’t see that because the ability to spend that money is constrained,” Yousif said.
In 2012, Transparency International classified Iraq’s public-sector corruption as among the highest in the world; the country was ranked 169 out of 176 countries on its Corruption Perceptions Index.
“Macro-economic growth has not translated into commensurate improvements in people’s well-being,” Sudipto Mukerjee, who leads the economic recovery and poverty alleviation team at the UN Development Programme (UNDP) in Iraq, told IRIN.
Iraq has always been dependent on imports, and its agricultural and industrial sectors – already small – stagnated under the American push for import liberalization, which brought in a flood of cheaper goods. The oil sector has also failed to produce many jobs. The sector represented about half of Iraqi GDP in the 2000s, but employed less than one percent of the economically active.
After a massive jump in unemployment from 1990 to 2004, according to government statistics, the unemployment rate fell from 28.1 percent in 2003 to 11.7 percent in 2007, rising again to 15.3 percent in 2008.
Today, the rate is eight percent, according to the Iraq Knowledge Network (IKN) survey, based on the narrowest definition of unemployment (people who did not work at all in the seven days preceding the interview and were available for work and actively seeking a job that week), and 11 percent using the more relaxed definition (those who are not “productively” or “usefully” occupied, and are not actively seeking work but would do so if conditions in the labour market improved). Government numbers, which use an even broader definition, are higher. Women, youth and people living in rural areas have higher-than-average unemployment rates.
A survey by the National Democratic Institute (NDI) late last year found that more than half of Iraqis – 55 percent – named unemployment as one of their top two concerns for the government to address.
For those who do have jobs – mostly with the public sector – larger salaries have not necessarily meant more purchasing power because inflation has risen. At its height over the last decade, consumer price inflation surpassed 50 percent (some sources put it as high as 76.5 percent) in 2006. As of January 2013, it was down to 2.2 percent, according to the Central Bank of Iraq.
Mustafa Ahmed, a father of two from Baghdad, complains that everything is more expensive now: “I used to buy a sandwich for 500 Iraqi dinars. Now it costs 5,000. I used to fill the car with gas with 6,000 dinars, and now [it costs me] 30,000.”
Measuring poverty
Still, the picture has vastly improved since the years spent under sanctions. Of all the Millennium Development Goals (MDGs), Iraq has made the most progress on the first, already achieving the target of halving the proportion of the population living in extreme poverty by 2015. The percentage of people living on less than US$2.50 (adjusted for purchasing power parity) dropped from 28 percent in 1990 to 13.9 in 2007, then to 11.5 in 2011.
“With the end of the economic embargo in 2003 and the wage and salary hike of 2007, the standard of living of [Iraqi] households witnessed a significant improvement,” the Central Statistics Organization wrote, explaining the statistics. “Income of people working in the public sector (which constitutes 45 percent of the total household income) went up, leading to a significant decrease in the proportion of people living on  less than dollar a day compared to the1990 level.”
However, the World Bank deems the national poverty line – 76,896 Iraqi dinars per month – a “far more useful” gauge of economic well-being. By that measure, 23 percent of the population lived in poverty in 2007, according to a survey by the government and the Bank.
“While unemployment has declined substantially, poverty rates have remained stubbornly high since 2004,” Yousif said.
Research to be released later this year by the government and the UN examines levels of multi-dimensional poverty – the absence of access to certain basic needs – which could reveal even higher levels of deprivation.
“In a middle-income country which has seen significant economic growth,” said Mukerjee, “should we still have so much unemployment? Should we still have so many people below the poverty line?”
He and others are quick to point out that national averages are skewed by relatively faster progress in the autonomous, more peaceful Kurdish region in the north, obscuring deprivations in other governorates such as Qadissiya, Muthanna and Diyala.

Photo: Heba Aly/IRIN
The Duty Free shop at the Erbil airport in Iraq’s autonomous Kurdish region is a sign of much higher level of wealth in the northern, more peaceful part of the country

The silver lining, perhaps, is that poverty in Iraq is not very deep: the poverty gap index, which measures the average gap between how much the poor spend as a percentage of the poverty line, has fallen from 5.0 percent in 2006 to 2.6 percent in 2011, according to government statistics – much lower than most other countries. As such, while there are many people at the edge of the threshold, who could easily fall into poverty, there are also many in poverty who could easily could be brought out of it with a bit of support.
For more, check out Confronting Poverty in Iraq, a 2011 book by the World Bank analysing the findings of its 2007 household socio-economy survey. Bassam Yousif’s work, both for the Costs of War project and the Middle East Report magazine, is also useful. You can find all sorts of government statistics, including financial and oil-related, here and a UN fact-sheet on the labour force here. The government’s National Report on the Status of Human Development of 2008 lays out the government’s vision for addressing the imbalance between oil revenues and poor living standards.
For other development indicators, visit IRIN’s series: Iraq 10 years on.